Thought leadership for banking and financial services professionals

Are smaller, tech-driven branches the future?

Posted on August 4th, 2017

How banks are managing their branch network – particularly when closures are involved – is the subject of much debate at the moment. Closures often prove controversial and there is an inevitable impact on customer satisfaction, but rather than heralding the death of the branch, should we be focusing on how and why the branch concept needs to change?

There is no doubt that the branch still has a pivotal role to play in the banking industry, but it’s possible that, during the years to come, bricks-and-mortar sites could go through a telling transformation.

Why the branch is still relevant

There are many reasons why the branch remains relevant and important to many customer demographics, but one of the most powerful of all is that people want to know that, when they need it, the option is there to make face-to-face contact with their bank. This proves particularly important when people are committing to big financial decisions or need advice.

According to Accenture, the branch has three essential roles, one of which is the ‘advisory hub’, particularly for complex, high-margin products such as mortgages and pensions. The other key roles highlighted in the report are the ‘digital ambassador’, which involves branch staff supporting customers in the transition to digital banking, and the ‘problem solver’, where employees focus on first-contact resolution to retain customers.

Accenture research from 2015 revealed that 80 percent of consumers who had switched to another provider due to poor service could have been retained, mainly if their problem had been resolved when they first contacted their bank. Around two-thirds (65 percent) of customers who experience problems with their banking services visit a branch to fix them.

A recent survey conducted in the UK by Saga, a provider of services to over-50s, suggested that a quarter (25 percent) of this age group would be forced to switch their account if their local branch closed down. Half (50 percent) of the participants in the study said banks should not be allowed to close branches, while 37 percent said they would be unable to conduct a number of financial transactions if they had no access to a high-street bank.

Lisa Harris, head of communications for Saga, said: “It is clear that access to a local high-street bank is important for the over-50s, particularly for the older generations who are less likely to bank online and more likely to find it difficult to travel further afield. Many over-50s will have held an account with the same bank for a number of years and will find the switching process stressful.”

It’s also important to remember the commercial benefits banks can gain from having a strong branch network. According to a recent report from New York-based investment banking firm Keefe, Bruyette & Woods (KBW), the overall number of bank branches in the US is only 3.5 percent down on peak levels, Business Insider reported. The reason for that is that they still have an important role to play – chiefly serving as a visible representation of a bank’s brand. Any money saved by closing branches may have to be redirected to marketing to maintain brand presence.

“We agree with bank managements that shrinking branch numbers cannot be a simple cost saving for banks as it reduces the presence of the institutions to consumers, even if consumers are not going into the branches,” KBW analysts said.

How the branch is changing

The research from KBW suggested that, rather than reducing the number of branches in their network, many banks in the US are focusing on downsizing.

Andrew Cecere, president and CEO of US Bancorp, said: “Branches are a great source of deposits. We recognize that and I think that’ll become even more important as we move into a higher interest rate scenario. At the same time … transactions in a branch are reducing, so 60 percent of transactions today are done digitally outside of the branch. So what we’ve done, and we will continue to do, is change the footprint of the branch in terms of reducing the square footage.”

A similar trend is evident in the UK, where Lloyds is trialing the concept of the ‘micro-branch’. These scaled-down sites replace traditional teller counters with self-service ATMs and a skeleton staff equipped with tablet computers to serve customers. Lloyds spokeswoman Clare Mortimer said: “This isn’t about the death of the bank branch; it’s a reimagining and reinvigorating of branches.”

According to commercial property consultancy JLL, the bank branch of the future will be smaller and more reliant on automation. The firm also predicted that branches will be repurposed as engagement and education centers, offering something that customers can’t get from mobile and online banking.

Christian Beaudoin, senior director of research at JLL, pointed out that the process of branch consolidation and optimization has been ongoing for the past decade.

“This is not meant to imply that bank branches are disappearing, but they are certainly evolving, and oftentimes in formats that are completely unrecognizable from their predecessors,” he added. “During this period of consolidation, new branches have also been built – as many as 475 new branches since 2014 – but these new locations are very different from their earlier peers.”

What seems clear is that technology will have a critical role to play in the evolution of the branch. Banks now have access to a range of solutions that can support branch transformation, such as ATMs with inbuilt cash recycling and deposit functions, which can host on-screen connections to remote tellers. Leveraging self-service solutions to drive efficiency and maximize customer convenience frees up branch staff to focus on providing advice and bringing in new business.

Managed in the right way, the development of the branch concept over the coming years could usher in a new era of personal banking for customers and open up many exciting business opportunities for banks.

Image credit: iStock/ultramarine5

Written by Nigel Martin

Nigel is marketing director for channel transformation software at NCR. He has more than 20 years’ global experience in enterprise software marketing. A recognized expert in strategy and customer engagement, he is a previous winner of the global information award and has a doctorate in strategic brand development. Based in the UK, Nigel is responsible for marketing NCR branch transformation, self-service reinvention and channel management solutions for financial services.